A Trump Presidency Will be a Blow to India on Many Counts

Indian business leaders are concerned that the rabble-rousing business tycoon's tough trade beliefs and xenophobia could negatively impact the country.

Indian business leaders are concerned that the rabble-rousing business tycoon’s tough trade beliefs and xenophobia could negatively impact the country.

Donald Trump at a political rally. Credit: Michael Vadon

Donald Trump at a political rally. Credit: Michael Vadon

Note: This article was first published on April 1, 2016 and is being republished on account of Donald Trump’s victory in the 2016 US presidential election.

New York: Republican presidential candidate Donald Trump has frequently targeted India through his rhetoric, recently accusing India and China of taking unfair “advantage of the United States” and has used widely televised debates and pep rallies to pillory outsourcing. Indian business leaders are concerned that a Trump presidency could negatively impact the country.

India’s Chief Economic Adviser Arvind Subramanian told the Advancing Asia Conference hosted by the IMF: “My concern is that Trump in his last debate, said – ‘H-1B, whatever it is, I use it but I don’t like it. I want to scrap all H-1B visas.’ That’s very worrying for India’s export-led growth going forward.”

India’s software services accounted for $82 billion-worth of exports in the financial year ending in March 2015, according to the Reserve Bank of India; 60% of that figure came from North America.

Indian outsourcing giants Tata Consultancy Services, Infosys and Wipro are heavy users of the H-1B visas. The IT industry has genuine concerns as Trump has shifted his position several times on the H-1B program. Early in his campaign, Trump proposed restricting the program and criticised it for giving away coveted entry-level IT jobs to workers flown in cheaper from countries like India.

Then, during the third Republican debate, he complained that a paucity of H-1B visas was making America lose talented people. “They go to Harvard. They go to Yale. They go to Princeton. They come from another country, and they’re immediately sent out. I am all in favour of keeping these talented people here so they can go to work in Silicon Valley,” said Trump.

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The Republican front-runner then reversed his claim after the debate. In a statement released on his campaign website, Trump said he doesn’t actually support the H-1B visas. Instead, he said he would “end forever” using H-1B workers for cheaper labour, and stuck to his initial proposal of a recruitment requirement for employers.

In his 2011 book Time To Get Tough, Trump also advocated a 15% tax on companies for outsourcing jobs to places like India, and a 20% tax for importing goods and services.

“Outsourcing is as old as Adam Smith. You can’t turn economics on its head. Services will move where they are cheaper. US consumers have benefited from a higher quality of services from India at a cheaper price,” said Rajiv Khanna, president of the powerful India-America Chamber of Commerce.

“Trump has overruled himself several times on the H-1B visa program, which is good. It shows he is flexible. If Trump imposes a 15% duty then those services coming to US companies will just be 15% more expensive. It is not as if there is capacity in the US to perform those services,” said Khanna. “I wouldn’t be as upset as the Indian companies are as this is election rhetoric.”

Obama and Indian IT

In 2008, then-candidate Barack Obama had promised voters that he would work to slow the outsourcing of American jobs to other countries, proposing to revamp a federal tax code that encourages companies to maintain overseas operations. A year later, Obama as president came out with a plan to revamp tax rules and end the tax deferral system. Under this plan, outsourcers with big Indian operations could have been hit with a higher 35% tax bill if deferrals were eliminated. In the end, however, Obama’s plans got a cagey response from the US Congress. The broad tax changes have not happened.

Still, that’s not to say everything has been smooth sailing for India’s IT industry during Obama’s presidency. Trump’s anti-outsourcing talk comes at a time when the Indian IT industry is already feeling like a punching bag for US protectionism. In December, the US Congress passed a bill named the “9/11 Health and Compensation Act” to fund continued healthcare for first-responders. To keep the dollars flowing, the Bill doubled the fee for H-1B visas for every new applicant to $4,000 and to $4,500 for every L-1 visa, which is needed for intra-company transfers.

These changes will be in force for the next 10 years and are likely to cost the Indian IT industry $400 million a year, according to NASSCOM.

Trump’s globophobia

Trump says that, if elected, he’d get Apple to build its computers in the US rather than in other countries. He has promised to slap a 35% duty on Ford cars made in Mexico and other foreign countries. Trump’s protectionist wild talk is disconcerting for the rapidly growing US car manufacturing industry in India.

US car giant Ford has manufacturing plants in Chennai, Pune and a new factory — which cost $1 billion to build ­— in Sanand, Gujarat. Ford says it plans to use the Gujarat factory to triple the number of cars it exports out of India.

Also read: What Lies Ahead for India-US Ties Under President Trump

“Together we are delivering Prime Minister (Narendra) Modi’s vision for India,” Mark Fields, chief executive of Ford, said at the Ford factory opening on Thursday March 24. “We are happy to be making in India for India and for the world.”

Ford’s move shows support for Modi’s “Make in India” campaign to get more US companies to manufacture in and export from India.

But if Trump has his way, things will be very different. Trump, who has been selling himself as a smart businessman, proposes to slap massive tariff taxes on America’s largest trade partners.

“I would tax China or its products coming in,” Trump told The New York Times earlier this year. As for Mexico, he has said: “every car and every truck and every part manufactured in their plants that come across their border, we’re going to charge you a 35% tax.”

If Trump has his way, high US tariff barriers would extend to car and auto parts made in India, which already exports more passenger cars than China. Foreign car makers in India, such as Hyundai, Suzuki Motor, Nissan, General Motors, Ford and Volkswagen AG, have seen their passenger-car exports jump over 60% in the last five years, to 620,000 passenger vehicles in 2014. China trailed behind with 533,000 auto exports last year.

An anonymous senior executive at US beverage giant PepsiCo, said, “Trump’s anti-free trade crusade appeals to union members and left-wing labor bosses. Trump wants voters to believe Mexicans, Chinese and Indians are ‘ripping us off.’ But it isn’t a zero sum game.”

Timmons Roberts, a professor of environment and society at Brown University, says Trump has hit a sensitive American nerve on fears of what is derisively called “globophobia”. Sadly, what muscle-flexing Trump doesn’t tell voters is that the American people will finally end up paying these taxes, which, as with any levies, will be embedded in the price of the product.

It’s unusual for foreign diplomats to express concern about candidates in the middle of a presidential campaign. But Trump’s anti-free trade campaign and rants against minorities has spurred foreign diplomats, including from India, to complain to the U.S state department.

“As the [Trump] rhetoric has continued, and in some cases amped up, so, too, have concerns by certain leaders around the world,” one state department official was quoted as saying, citing India, South Korea, Japan and Mexico among countries whose diplomats had raised the matter.

Trump vs. Clinton on foreign policy

The Washington Post reported that in a meeting with its editorial board, Trump laid out his “unabashedly noninterventionist approach to world affairs,” including a plan to “significantly diminish” US involvement in NATO, and he questioned “the value of massive military investments in Asia”. He argued that the best way to halt China’s military airfields on reclaimed islands in the South China Sea was to threaten its access to American markets.

“This is a man who knows nothing about foreign policy. Trump wants to withdraw America from the world. His foreign policy is incoherent and bereft of meaningful ideas,” said South Asia expert Sumit Ganguly, who holds the Rabindranath Tagore Chair in Indian Cultures and Civilizations at Indiana University, Bloomington.

Ganguly added, “On the other hand, Hillary Clinton is a seasoned foreign policy professional. This is someone who is knowledgeable about the world and who can reason, in contrast to Trump, who is a demagogue. Clinton would mean, for the world, an emphasis on free trade. She would probably mean an interventionist US foreign policy, an activist American foreign policy.”

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As the former secretary of state, Clinton’s signature initiative became known as the Obama administration’s “pivot to Asia.” While the US was bogged down in Iraq and Afghanistan, China had the headroom to expand its influence in the region with allies like North Korea, Pakistan, Myanmar and Sri Lanka. Rising China spurred Clinton to consolidate America’s ties with regional powers like India, Japan, Australia, Indonesia and the Philippines in a policy pivot towards Asia.

There were many reasons Clinton was missed by India as John Kerry replaced her as secretary of state for Obama’s second term as president, not the least because she maturely accepted that India and the .S will not see eye-to-eye on all issues, nor will their interests always concur. Yet she was a good friend to India and ensured the relationship was not cantankerous.

According to Indian diplomats, Clinton understood the glue that bound India and Iran, which other Washington elites found so hard to fathom. She tamped down concern in Washington about India’s oil trade with Iran. Her efforts ensured that India was exempted from financial sanctions in 2012 along with six other countries. Instead of being an alarmist she saw India’s traditional ties with Iran as part of India’s smart eco-diplomacy.

“It would be interesting to see how Clinton handles Pakistan. I have been disappointed with the Obama administration’s willingness to coddle Pakistan despite its continued utilisation of terrorists to accomplish its security and foreign policy goals,” said Ganguly.

When Clinton was America’s top diplomat, she consistently prodded Pakistan on terrorist havens and stuck to delivering a tough message.

With Clinton as the pragmatic alternative, India can only hope that Trump’s presidential bid eventually flames out.